The JPMorgan Settlement Isn’t Justice

Nov. 22 (Bloomberg) -- For years the public has vented
about half-baked government settlements in which corporations
and white-collar defendants “neither admit nor deny” the
allegations against them. The Justice Department wasn’t about to
go down that path when it unveiled its big, not-really-$13
billion deal this week with JPMorgan Chase & Co.

So the government made a few sly tweaks. The result is a
mutant offspring of the no-admit genre that may be even less
satisfying than the parent. JPMorgan didn’t have to admit to any
violations of the law. And here’s the rub: The Justice
Department didn’t allege any, either.

According to the settlement agreement, the bank will pay a
civil penalty “pursuant to” a statute called the Financial
Institutions Reform, Recovery and Enforcement Act. However, the
Justice Department didn’t lodge any claims against JPMorgan for
breaking that law or any other. This was an out-of-court
settlement. The Justice Department didn’t file a complaint. No
judge’s approval was needed.

The agreement did incorporate an 11-page statement of facts
that explained in vague terms what JPMorgan did. Yet none of the
acknowledgments by JPMorgan in that document hurt the bank.
JPMorgan didn’t admit liability or even any mistakes. That’s no
better than the old “neither admit nor deny” boilerplate.

No Justice

This isn’t justice. It’s more like the greenmail that
companies sometimes pay to corporate raiders who demand premium
prices for their shares in exchange for going away. No
individuals got pinched. We don’t know much about the details of
what the Justice Department’s investigation found. It’s unclear
why prosecutors didn’t accuse JPMorgan of fraud, although one
possible explanation is that the government lacks proof.

The wording of the settlement agreement was awkward at
times, too. It said the Justice Department had investigated the
mortgage-bond operations of JPMorgan and two failing companies
that it bought: Bear Stearns Cos. and Washington Mutual Inc.
“Based on those investigations, the United States believes that
there is an evidentiary basis to compromise potential legal
claims by the United States against JPMorgan, Bear Stearns and
Washington Mutual, for violation of federal laws,” the
agreement said.

That line makes it seem like the U.S. doubted its own case,
although perhaps it was just poorly drafted. The sentence would
have made more sense if it said there was enough evidence to
“bring” claims against JPMorgan, not “compromise” them.
Maybe the prosecutors were trying to say they believed there was
sufficient evidence to merit a settlement. But that doesn’t make
much sense, either: The act of settling speaks for itself.

As an aside, it’s fitting that Massachusetts Attorney
General Martha Coakley took part in the same accord. Of the $13
billion headline figure -- which combined the Justice
Department’s $2 billion penalty with the amounts secured by
several state and federal agencies -- the settlement agreement
earmarked about $34 million for Massachusetts.

In 2009, Coakley took a similar claim-free approach to
squeeze money from Goldman Sachs Group Inc. Her office didn’t
file a lawsuit or allege that Goldman Sachs violated any
statutes or rules. Goldman Sachs didn’t admit anything, either.
But it did pay $60 million to make the Massachusetts
investigation go away. Coakley’s office had been looking into
Goldman Sachs’s packaging of subprime mortgage bonds.

Surely some of the money that JPMorgan shells out will go
to good use. Yet something important is lost when law-enforcement officials strike bargains with powerful corporations
behind closed doors and fail to be transparent about what their
investigations uncovered.

The Justice Department said this week that the settlement
“does not absolve JPMorgan or its employees from facing any
possible criminal charges.” By this point, though, it’s hard to
take the Justice Department seriously when it says to stay
tuned.

Not Really

The department also said that “JPMorgan acknowledged it
made serious misrepresentations to the public” as part of the
agreed-upon statement of facts. Actually, it did no such thing.
The document didn’t use the word “misrepresentation” or
similar language to describe any of JPMorgan’s actions.

Usually when corporations settle with the Justice
Department, they agree not to contradict the government’s
assertions publicly. Yet on this occasion JPMorgan felt
compelled to set the record straight. “We didn’t say that we
acknowledge serious misrepresentation of the facts,” JPMorgan
Chief Financial Officer Marianne Lake said during a Nov. 19
conference call.

She was right: The Justice Department overreached in its
characterization. It isn’t a good sign when the company paying
billions of dollars to resolve a government probe comes across
as more believable than the government lawyers who cut the deal.